The Big Picture Student Loans

March 19, 2013

In writing this article I first had to overcome my natural inclination to dig deeper and deeper into why the problem occurred in the first place. The problem with addressing any topic in isolation is that in doing so one may lose sight of the bigger picture. The tendency to ignore the fact that every solution has the potential to change the environment in ways that affect the nature of the problem often results in what many call unforeseen consequences. Here I address one facet of a larger problem while attempting to put it into context.

A College Education, The Ticket to the American Dream?

It would seem that the current student loan problem is less about the size of the loan and more about the lack of income to pay for it. This would seem self-evident, but I would suggest that few would be complaining about the size of their loan payments if the expected income had materialized. As the graph above clearly indicates there are a number of obvious reasons that the incomes of college graduates have not kept up with the college expenses incurred. Unfortunately the Obama Administration seems to have missed the memo as indicated by the following quote:

The Obama administration plans for the United States to have the highest percentage rate of college graduates in the world by 2020

Although this may at first seem to be an admirable goal, the truth of the matter is that while it may play well politically it makes absolutely no sense economically. The reality is that there is a glut of college graduates, hence the problem in finding jobs with a high enough compensation package to pay off the college loans. This over abundance of supply should come as no surprise when one considers the fact that the percentage of the US population with college degrees in 2013 has increased six fold from the percentage in the year 1947. Today’s graduating senior is caught in a bind from which it seems there is no escape.

What Happened?

At the end of World War II “….the United States armed services were over twelve million men and women strong. The Army ground and air forces began partial demobilization of its approximately 8,290,000 soldiers on 12 May 1945 (2) and by the end of 1948 had pruned the Army to 554,000, approximately onesixteenth of its earlier size.(3)”(http://www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA415899)

As a result of the war the economic travails of the “Great Depression” were a somewhat distant memory and yet the cessation of hostilities meant that millions of soldiers would be coming home needing jobs at the very same time the economy would be shedding jobs due to the cessation of those hostilities. A variety of programs were enacted which were designed to keep the economy humming along and fill the void created when the military no longer could be counted on to take up the slack. Institutes of higher learning played a major part in making that happen.

Sending the returning vets to college on the government’s dime had a number of advantages, including that it kept them off the streets while at the same time creating opportunities for those who were employed by the educational institutions.

Thousands of veterans used the GI Bill to go to school. Veterans made up 49 percent of U.S. college enrollment in 1947. Nationally, 7.8 million veterans trained at colleges, trade schools and in business and agriculture training programs. (Link here)

The post-war years saw an educational boom the likes of which the country had never seen(1). Thousands of otherwise able-bodied men and women were effectively kept out of the work force as they stayed in school and graduated from both high schools and colleges in increasing numbers. The adage that a college degree was a ticket to a good job became a self-fulfilling prophecy. Twenty years later there were riots in the streets, but the boom in higher education continued. As the demand for education increased the cost of the education did likewise with the result that more and more students needed help paying the cost.

As more loans became available more students of whatever quality attended college. As more students graduated from both high school and college the value of each diploma was reduced and yet the structure required that the educators retain their jobs and that the students be kept out of the work-force. The graduates of today have the worst of two worlds.

On the one hand, the demand for educational credentials has never been higher, which has kept the cost of that educational experience relatively high, along with the need to borrow the money to cover it. On the other hand, the stimulus to the economy which was achieved by keeping them out of the work force for an additional four to six years beginning back in 1947 has just about run its course. They now face the unfortunate reality that they do indeed need to complete higher levels of schooling just to compete against others in the same situation and yet many of them find themselves deep in debt before they even leave the starting line.

The fact of the matter is that the student loan problem is another example of the cure eventually becoming a part of the problem. In the past, systemic problems such as the United States is now facing have been addressed by going to war or accepting a severe drop in living standards or even the dissolution of the society itself. The possibility that there are other solutions exist, but I see no evidence that our politicians are availing themselves of them.

Artificial stimulus packages which attempt to mask the problem are doomed to fail in the long run. The fact that the Obama Administration continues to oppose bringing on line new energy sources which might actually mitigate the problems the country is now experiencing is either evidence of complete ignorance, or something worse. Printing money is not the solution, adding value and finding cheaper ways of doing things is.

Share this:

Like this:

Related

…..”Although this may at first seem to be an admirable goal, the truth of the matter is that while it may play well politically it makes absolutely no sense economically. The reality is that there is a glut of college graduates, hence the problem in finding jobs with a high enough compensation package to pay off the college loans. ” ….

___

The Government process, e.g. Sallie Mae, will make it very easy to pay toward those loans, probably knowing that most won’t have the income at the start to make high payments, so they agree to a very low payment amounts to accommodate the student. There is also a grace period to begin making payments.

As I see it, then, the problem is not being incapable of paying off the loan (eventually), it’s that I see it as one huge scam for the Government to profit from people that they hope will take years to pay off the loan. They are counting on it ! ..It’s a money-making scam, and I have good reason to believe so through personal observation.

Fortunately, I have *not* had any negative consequences from experiences that affected me personally.

“probably knowing that most won’t have the income at the start to make high payments”

What makes you think that “most” will have the income in the end? If I remember correctly almost 50 percent don’t even graduate and those that do are going to find it increasingly difficult to get jobs commensurate with their educational status. Once the entire nation has phd’s…what then?

I don’t know that “most” will, but what I *attempted to point out* is that many might have an income of ‘some kind,’ and the Government will work with them to afford payments, as my counterpoint to your suggesting they won’t be able to pay back their loans.

Those that didn’t go to college 1) will already be in those low paid jobs and at a higher pay scale than those just entering that market four to six years later, and 2) they will have a headstart in possibly owning a home and other worldly possessions that they *think* they have to have. lol

Oh, your point on the phd’s is well-taken. I saw the hand-writing on the wall long ago — it’s part of the scam to make money for the system, and create big hopes that won’t come true for most. We need more Indians, not chiefs (hope it’s Ok to say that).

And, yes, I agree—- the whole thing—- loans, getting a degree, and businesses requiring a degree that is non-related to the job skills — is aiding to our economic woes…. fewer skilled jobs, and more people with debt.